Winter 2015

Tag Archives: jobs

Small business is an important focus of economic recovery because they are adaptable and stable forms of tax revenue and they create jobs.

Since the recession, the U.S. economy has not bounced back as quickly as it has in the past. One of the main reasons for this delayed recovery is because of the decrease in small businesses. Although small businesses do not generate as much money as their larger counter parts, they are an invaluable piece to the country’s economy. In the United States alone, small businesses make up between 60-80% of all jobs and employ almost half of the private sector work force. Therefore, when considering ways to further stimulate our economy, focusing on the establishment and growth of small businesses is an ideal place to start.

On a local scale, small businesses strengthen the economy by bringing growth and innovation to the community. Small businesses attract talent from individuals who are inventing new products or creating new solutions. In addition, small businesses usually remain stable through changing economic times as they are more adaptable to change and customers are more likely to stay loyal. Even if the economy is struggling, majority of consumers will not stop going to their favorite local coffee shop in the morning, regardless if the latte price increases twenty-five cents. As a result, small businesses are a stable form of tax revenue for communities and where there is more tax dollars there is a bigger budget. This budget is reinvested in the community through schools, public transportation, and the police force.

In order to maintain the valuable effects small businesses provide to the economy, the right climate of entrepreneurship and support must be created and fostered. Fortunately, many programs and support organizations exist that valuable the role of the small businesses, even if they are not small businesses themselves. For example, Goldman Sachs created a the 10,000 Small Business Initiative which focuses on providing small businesses with “greater access to business education, financial capital, and business support services”. The company’s goal is to reach 10,000 small businesses across the country through this integrated approach to create jobs and economic opportunity.

Although the labor department recently announced that unemployment rates fell, the data does not always portray the whole story as there are millions of people still searching for jobs. In order to see our economy continue to flourish, new jobs must continue to develop, which is exactly where small businesses come into play. The value of small businesses and consequently more employment opportunities cannot be understated, as it is a major source of economic stability and economic growth that our country still desperately needs.

Thesis: Local governments have an incentive to continually approve new suburban developments without considering the long term consequences. This has led to the growth of inaccessible jobs.

The United States is trending towards a state where its workforce is disconnected from the businesses that employ it, new research from the Brookings Institute suggests. The data is stark: from 2000 to 2012, jobs within the average commute of major metro areas fell by 7%, with jobs within commuting distance declining for both urban and suburban residents of those areas. Jobs are not only moving away from the center of cities and towards the suburbs, but they’re spreading out and becoming harder for people to get to. Our very own metro Detroit is the worst city in the nation when it comes to job sprawl, with a whopping 77% of jobs located at least 10 miles away from the central business district. Just as one might imagine, this poses a serious problem for the city’s many low-income residents who don’t own vehicles, unless they have access to some form of public transit that can connect them to their place of work. As it currently stands, most cities can’t hope to create a public transit system extensive enough to connect non-car owners to the widening network of jobs. So what can be done to make jobs more accessible?

The most obvious change that could be made would be a reverse migration of Americans from the suburbs back to the cities. And although it seems that such change is taking place – young people are flocking to cities at the rate of millions per year, as The Atlantic writes – there isn’t much that local governments can do to support this trend that they don’t already do. Where local government can have an impact is in its support for new suburban development. County and municipal governments have a strong incentive to approve or even push for development to increase their revenue. When a local government approves a new development it gets an influx of cash from public works contracts and registration taxation associated with the new suburbs. In the long run, these governments struggle to keep up with the infrastructure required, providing incentive to approve new developments to keep up with revenue needs. The result is an incredibly costly cycle with no ending point. There are many other costs associated with suburban living. One estimate produced by The New Climate Economy (which, admittedly, is not the most unbiased source for this approximation) prices the annual costs of America’s suburbs to be about $1 trillion, due to infrastructure costs, longer job searches, environmental impact, wasted valuable land, and many more factors. Of course, some people will always crave suburban life, and so long as they pay for the associated externalities, they should enjoy that right. But hopefully we can find a solution to local governments producing suburbs with no end in sight.

Most economists do not think about the middle class when asked how do you make the economy grow? Although economists differ in their specific answer to this question, Heather Boushey and Adam Hersh point to five central ideas included in each answer: the level of human capital, cost of and access to financial capital, strong and stable demand, the quality of political and economic institutions, and investment in public goods, education, health and infrastructure. The middle class plays a central role in each of these categories. First, a strong middle class promotes the development of human capital through a well-educated population. Next, a strong middle class creates a stable source for demand and supports political and economic institutions. Lastly, a strong middle class creates and fosters the next generation of entrepreneurs. The Kauffman Foundation conducted a study on the demographics of entrepreneurs and found that only 1% come from extremely poor or extremely rich backgrounds, which leaves 99% coming from the middle class.

President Obama reiterated this idea in his State of the Union speech when he said that the middle class is the foundation of our economy. However, the issue lives in the declining number of households that are still considered middle class. Since 1967 the percent of households in the middle-income classification, defined as a cumulative household income between $35,000-$100,000, decreased from 53% to 43%. The decline of the middle class is not a homogenous trend, it is further divided when considering age and demographic. Younger households are facing the largest decline and therefore are more likely to fall into the lower income category, whereas households with people in their late 60s are more likely to remain in the middle class or move up to the upper class. Many of these changes are centered on income levels. For younger households, incomes are falling and for older households their wages continue to rise after a certain number of years in their career. In addition, geography of the household matters. The Northeast was hit the hardest in terms of job security during the Great Recession, where the economy relied on industry. These industrial economies turned into suburbanization and increased wealth for some and difficult times for others, therefore further increasing the inequality.

In order to preserve the middle class and further stimulate the economy, President Obama is focusing on offering raft proposals to help pay for a college education, taking parental leave, childcare, and buying a home in order to make working class families feel more secure. After the Great Recession the majority of lost jobs came from the middle class and as jobs started to come back most of them were from a lower income sector. If these programs work the direction of the economy will change, as more and more jobs will be created. Therefore, when considering how to stimulate or grow the economy taking into consideration the state of the middle class is necessary and vital for a full recovery of the economy.

The Patient Protection and Affordable Care Act, also known as Obamacare, is one of the most groundbreaking forms of social legislation passed in the past fifty years or even arguably since Medicare. Obamacare has developed into one of the most polarizing issues from politicians to economists to doctors and everyday American citizens. Since its debut in March 2010, how has the Affordable Care Act affected our economy? Mike Patton, a contributor for Forbes magazines, raises a tentative red flag.

Before diving into how Obamacare affects the economy one must first understand a key rule within the law that states “employers with 50 or more employees who work 30 hours or more each week must be covered by an approved health insurance policy.” Hypothetically speaking, if you are a business owner you understand the additional costs that Obamacare would place on your business and therefore might search for ways to avoid having to be covered by an insurance policy. In order to do this you could reduce the number of hours each employee works or reduce the number of employees all together. All of these steps would help save your profit margin which would have been drastically upset by implementing an approved health insurance policy.

Looking at this issue more broadly in terms of the economy, Obamacare will induce a sense of uncertainty among business owners, which is the opposite of what a struggling economy needs; the more uncertainty in business the less start ups and less growth from existing businesses as they seek to lower expenses. The effect of Obamacare on the economy is a perfect example of unintended consequences. The ultimate effect on the economy is not promising or positive as employers have to readjust their workforce in the hopes of not hitting the dreaded 50 employees or 30 hours a week. Although intended to provide a wider range of coverage for Americans, Obamacare is likely to raise the cost of labor, discourage hiring and encourage reducing overhead.

According to John C. Goodman, another contributor for Forbes magazine, Obamacare has the potential to cause a loss of four million jobs. Goodman states that the Affordable Care Act does not increase supply at the same proportion that it increases the demand for care. The demands for care are widespread with a long list of preventive services Americans are now insured for that does not require a copayment or deductible. As a result doctors offices are over-crowded as these free “wellness checkups” every year are taking up doctor’s times and valuable resources.

There is no clear-cut solution. Although the aim of Obamacare is to increase the number of Americans covered on insurance, at what cost do we continue to implement this plan? The negative consequences of Obamacare are shown in relation to the economy as it add an unnecessary burden to business owners as well as additional uncertainty that is an unstable starting point for the creation and maintenance of businesses.

In light of today’s budget announcement from the White House, I have decided to explore one of the main focuses of the $478 trillion spending plan that the President has come up with to revive the economy, infrastructure spending.

(www.pwc.com/cpi-outlook2025). The study also predicts that Western Europe infrastructure spending will not return to pre-crisis levels until 2018, as Asia’s has been growing this entire time.

“Developing economies, most notably China and other parts of Asia, account for nearly half of all infrastructure spending, up more than 10% from 2006” (www.pwc.com/cpi-outlook2025)

How will China’s success in the race for infrastructure growth will contribute to its economic growth compared to Europe’s?

While China’s economy had been growing in double digits over the last 20 years, growth has slowed recently. This growth is still at a respectable annual growth rate of 7%. China’s economy is maturing and beginning to lose its cost-competitive advantage to other lower cost countries. As this happens, China will need to make strategic investments to sustain its growth. Investments in infrastructure can serve this growth need. Infrastructure investments immediately create jobs in construction and related industries. Infrastructure investments also provide opportunities for longer term, more sustainable growth and development.

China should continue to make SMART infrastructure investments, especially in high speed rail, ports and airports and wireless high-speed telecommunications to continue to open markets within China and to provide a better quality of life for its citizens.

Virginia Lau discusses Chinese high speed rail in her article “Record breaker: China’s incredible north-south high-speed train line plan” for CNN as the world’s longest high-speed rail line was just proposed to run from “Inner Mongolia’s Baotou city and running through southern Shaanxi, Hubei, Hunan, Guangxi and Guangdong, its final stop would be in Haikou city on Hainan Island, China’s southernmost province” (http://www.cnn.com/2015/01/08/travel/china-high-speed-north-south-rail/). Additionally, this project will connect rural provinces with urban areas such as Beijing. This will promote growth by providing sustainable job opportunities for those in rural areas, as discussed above.

With “real” adulthood right around the corner, future plans have become an integral part of normal interaction among my peers. While everyone has a different plan in mind for himself or herself, there are usually two commonalities: getting a job and moving to a city.

For people like myself who are from Michigan, there is not a lot to keep you here post-graduation. The lack of young people and cold weather aside, the mediocre job market takes the cake for most impacting factor. As well-educated students, we must consider all aspects and implications of future decisions. This includes picking where we can grow and thrive the most. Especially where people have student debt accumulated, there lies a sense of urgency toward going to a city to achieve success that will help them (begin) to pay off their loans.

In the Wall Street Journal article “More Young Adults Stay Put in Big Cities” author Neil Shah notes that this may be a systematic problem. Shah points out how these young people who begin their careers in the cities are facing a higher tendency of getting stuck there. The standard notion from what I have experienced is that the city and the city job are starting points and you eventually move elsewhere in the suburbs when you’re ready for a family lifestyle. Shah posits “Some could get stuck in jobs that aren’t matches for them, reducing the economy’s productivity.”

The implications of people getting stuck in the city affect matters both socially and culturally. Young adults delay starting families and buying homes, they worry themselves about staying with jobs they may not care about and overall productivity in the workforce could be at stake. Additionally, the talented workforce becomes concentrated in only cities.

An article by The Atlantic states, “This geographic dispersal of highly-skilled workers, the norm for decades, meant that the gains of states with stronger economies would be spread to those with weaker ones.” This is referring to how the experienced and intelligent young city folk spread their positive influence by moving out of the cities. Without this, a perpetual problem is created where the weaker economies are more likely to remain weak.

Being in a position where moving to a city is something that I want to do, I did not foresee “getting stuck” as being a problem. The idea of being stuck anywhere is not favorable however it does not personally make my dreams of a big city job waiver. I think it will be interesting to see how this affects the economy, my peers, and I in different ways moving forward.

“Last week, the Obama administration announced an initiative, in conjunction with philanthropic supporters, to expand computer science education in 60 school districts, primarily at the high school level” (Litan, 2014).

I remember hearing this on the news near the end of December and thinking, finally. I am not a huge fan of politics, the seemingly endless debates and back and forth banter, while glossing over the important issues has always turned me off. This, however, is something from Washington that I finally can agree with.

I feel that there is a preconceived notion that computer science is an innate ability, that requires a certain type of brain in order to learn, similar to the stigma mentioned by Miles Kimball, and Noah Smith on their Quartz article where they mention “the myth of inborn genetic math ability” (Kimball, Smith, 2013).

Well I can say, from personal experience, computer science ability is learnable. My relationship with computer science began the second semester of my sophomore year at the University of Michigan. I had never seen a line of code in my life, but I always liked computers and I was curious to learn more about how they work. I immediately loved it, and now I am finishing up my minor in Computer Science this semester.

Before enrolling in EECS 183 (the first programming class I took, and the one I mentioned above), I had multiple people discouraging me. They would tell me that it is too difficult and that everyone else enrolled in the class already knows how to code. Contrary to popular belief, I was able to learn programming, and excel at it.

Although I am just one person, I am certain with dedication and hard work anyone can learn to program. This is why I am so glad that Obama is pushing computer science education.

“… Our nation has a chronic shortage of good computer programmers. Established companies and start-ups are starving for talent” (Litan, 2014).

“The U.S. concluded its best year of job growth in 15 years last month, with employers adding 2.95 million jobs for all of 2014 and the unemployment rate falling to a postrecession low of 5.6% nationwide” (Sparshott, 2015).

Things seem to be looking up for the United States economy, based on the increasing job growth and lower unemployment mentioned in the quotation above. My worry, however, similar to the worry of Robert Litan mentioned above, is that these new jobs will not be able to find the talent necessary to fill roles that require computer science knowledge. Meaning they will have to either increase on the job training, which would be costly, or outsource to a nation that already has a strong computer science base. Something we certainly do not want.

I am optimistic about the future of the United States economy, but I believe dramatic changes to the education system must be made in order to compete in the global economy.